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GAIL: Transmission volumes up again

Aug 4, 2010

GAIL has announced its 1QFY11 results. The company has reported a 17% YoY and 35% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary

Topline grows by 17.4% YoY during 1QFY11 on the back of a 25% YoY growth in the natural gas transmission business. Sales from the natural gas trading segment grow by 20% YoY, while that from the LPG & liquid hydrocarbons segments grow by 14% YoY.

EBITDA margin expands to 20.4% during the quarter from 17.9% in 1QFY10 on the back of lower raw material costs.

Other income records a decline of 20% YoY during the period.

Bottomline grows by 35% YoY during 1QFY11 due higher volumes and operating margins.

Standalone financial snapshot

(Rs m)

1QFY10

1QFY11

Change

Net sales

60,591

71,158

17.4%

Expenditure

49,737

56,612

13.8%

Operating profit (EBDITA)

10,854

14,546

34.0%

EBDITA margin (%)

17.9%

20.4%

Other income

599

478

-20.3%

Interest

179

205

14.6%

Depreciation

1,404

1,600

13.9%

Profit before tax

9,870

13,218

33.9%

Tax

3,312

4,350

31.3%

Profit after tax/(loss)

6,558

8,869

35.2%

Net profit margin (%)

10.8%

12.5%

No. of shares (m)

1,268.5

Diluted earnings per share (Rs)*

26.6

Price to earnings ratio (x)*

16.6

* On trailing twelve months basis

Performance summary

GAIL recorded a topline growth of 17.4% YoY during 1QFY11 on the back of a 25% YoY growth in the natural gas transmission business. Sales from the petrochemicals segment grew by 0.2% YoY, while LPG and liquid hydrocarbons segment grew 14% YoY.

Revenue break-up

(Rs m)

1QFY10

% share

1QFY11

% share

Change

Natural Gas Trading

39,280

65%

47,150

66.4%

20.0%

Natural Gas Transmission

6,690

11%

8,340

11.8%

24.7%

Petrochemicals

6,360

11%

6,370

9.0%

0.2%

LPG and Liquid Hydrocarbons

6,860

11%

7,810

11.0%

13.8%

LPG Transmission

1,060

2%

1,140

1.6%

7.5%

GAILTEL

40

0%

20

0.0%

-50.0%

Unallocated

100

0%

130

0.2%

30.0%

In terms of volumes, GAILís natural gas transmission volumes were 116 m standard cubic meters per day (mmscmd) in 1QFY11, an increase of 20% from 97 mmscmd in 1QFY10. LPG transmission during 1QFY11 was 788 thousand metric tonnes (TMT), up by 6% from 741 TMT in 1QFY10. The natural Gas sales during 1QFY11 were 85 mmscmd, up 6% from 80 mmscmd in 1QFY10. The LPG and other liquid hydrocarbon sales during the period were 356 TMT, up 7% from 334 TMT in 1QFY10. During 1QFY11, polymer sales were 88 TMT as against 92 TMT in 1QFY10.

The company posted a 35% YoY growth in bottomline during 1QFY11 mainly due to the volumes increase in natural gas transmission, natural gas trading and LPG & liquid hydrocarbons segments.

GAIL plans a capex of Rs 353 bn in FY13 mostly towards expanding its pipeline network . The company plans to add more than 7,000 km of pipelines to its existing network.

What to expect?

The stock currently trades at Rs 441, implying a multiple of 16.5 times our FY13 estimated consolidated earnings.
The subsidy burden is a legacy of the political meddling in the Indian oil and gas sector. Although transmission tariffs have been revised upwards, there remains the risk of opposition due to the governmentís proposed allocation to non-remunerative users like the fertilisers industry. Additionally, the petrochemical segment is prone to cyclical upswings and downturns.
However, the companyís in-place infrastructure as well as additional pipelines will help capture the increased transmission volumes of domestic natural gas, as and when they come on stream. Considering the factors for and against the company, we would advise against taking fresh positions in the stock at the current juncture.

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